Lanzhou, once known as the ‘Golden City’, has been an important regional commercial centre and transportation hub since as early as the Han Dynasty (206BC – 202AD). The city used to be a major link on the ancient Silk Road and has played a vital role in the cultural and economic exchange between China and countries to its west throughout Central Asia, the Middle East and Europe. Today, Lanzhou is the capital of Gansu Province, covering an area of 1,631 square kilometres and home to approximately 3.14 million residents.

Yao Lu of Dezan Shira & Associates takes a look at this ambitious city and explains how the local government is creating some extremely generous incentives to attract investment into the area.

Economic overview

Gifted with vast natural resources, Lanzhou is an important production base for petrochemicals, energy and raw materials in China, with over 40 industries turning out 20,000 varieties of products. The city is also the transportation hub and logistics centre of Northwest China. Strategically located in the heart of the country, the city has a well-developed transportation system consisting of railways, highways and aviation infrastructure, and is accessible by extensive road and rail links that radiate in all directions.

However, crowded into a steep valley carved between mountains by the Yellow River, the city suffers from a serious shortage of land, which largely hampers the region’s overall development. Even with China’s ‘Go West’ policy introduced by the central government in 1999, the city has failed to achieve any profound economic achievements in the past decade while many of its regional counterparts have witnessed rapid economic development.

Take Chengdu for example: the city’s annual GDP growth has outpaced many of the country’s first- and second-tier cities in recent years, and in 2012, its GDP grew 13 percent year-on-year to RMB 814 billion, ranking eighth nationwide. Meanwhile, the GDP of Lanzhou stood at only RMB 157 billion, one fifth that of Chengdu, ranking it 99th nationwide.

In response, China’s State Council approved the establishment of the nation’s fifth state-level development zone in Lanzhou on 20^th August, 2012. The national zone, named the Lanzhou New Area (LNA), is located in the Qinwangchuan Basin in northern Lanzhou. It has been strategically chosen to increase the connectivity with the surrounding regions of Xinjiang, Qinghai, and Ningxia, and covers an area of 806 square kilometres.

The Lanzhou New Area

The LNA is the first national-level zone in Northwest China and fifth in the country, following the Pudong New Area in Shanghai, Binhai New Area in Tianjin, Liangjiang New Area in Chongqing and the Zhoushan Islands New Area in Zhejiang Province.

The establishment of the LNA marks the central government’s latest efforts to boost the development of Northwest China. Lanzhou, situated in the country’s geographical centre, obtains strategic significance by linking together the region, serving as a gateway between the Northwest’s two megacities of Urumqi and Xi’an, and a go-between for the adjacent capital cities of Xining and Yinchuan. Therefore, the economic development of Lanzhou is of immense importance for the overall development of Northwest China, and for the country as a whole.

The LNA has been designed to focus on the development of advanced equipment manufacturing industry, petrochemical industry and strategic emerging industries. It will also promote the industrial upgradation and develop a circular economy with energy-saving industries with local characteristics. The GDP of the LNA is expected to reach RMB 50 billion by 2015, and RMB 270 billion by the end of 2030.

Investment and opportunities

In order to attract more investors to the LNA, the local government has offered a range of preferential policies to both domestic and foreign investors. In the recently-released Preferential Policies of Lanzhou New Area, various financial rewards and tax incentives have been made available to investors. Specifically:

• For companies registered and listed in the LNA, the local government will offer a one-off reward of RMB 5 million;
• For professionals qualified under the Thousand Talents Plan who have started a business in the LNA, they will receive RMB 1 million in supporting funds, as well as free offices and apartments from the local government;
• Senior technical personnel and management personnel of financial enterprises and high-tech enterprises incorporated in the LNA will be exempted from individual income tax for 10 years starting from the first tax year, and such taxes will be paid by the local government instead;
• Industrial enterprises established in the LNA will receive RMB 200 for each LNA resident they hire;
• For industrial projects and high-tech projects initiated in the LNA and put into operation before 31^st December, 2015, such projects will be exempted from the infrastructure supporting fees;
• For regional headquarters of multinational companies and headquarters of domestic enterprises registered in the LNA, as well as manufacturing enterprises established in the LNA by foreign investors, the corporate income tax and business tax paid to the local government will be fully refunded.

Moreover, the population of the zone is expected to reach 300,000 in 2015 and 500,000 by 2020, which offers great opportunities to investors in the service industry and related businesses to develop supporting facilities in the area.

As of the end of March this year, the LNA has lured 143 investment projects, with total investment amounting to RMB 146.5 billion. Moreover, 70 per cent of the infrastructure plans within the core area of the LNA have been completed, with the rest set to be completed within the year. However, the infrastructure for the whole LNA won’t be finished until 2030.

Dezan Shira & Associates is a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.For further details or to contact the firm, please email alberto.vettoretti@dezshira.com or visit www.dezshira.com.